Arconic C.E.O. Ousted After Sending Unauthorized Letter to Hedge Fund

As chief executive of Alcoa, Klaus Kleinfeld oversaw an effort to split the company in two. Last year, he won board approval to spin off what was supposed to be a fast-growing subsidiary, Arconic, and became the new company’s C.E.O.

Yet just months later, Mr. Kleinfeld is out at Arconic, after mounting pressure from the big hedge fund Elliott Management and a letter he sent in response without his board’s approval.

It is a big and surprising shake-up at Arconic as the company faces Elliott’s campaign to further remake its board. Investors are scheduled to vote on whether to add four directors to its board next month, as Elliott argues that Arconic continues to waste money and miss profit targets.

Part of those efforts centered on ousting Mr. Kleinfeld, who as the chief executive of Arconic drew the hedge fund’s ire for failing to lift the company’s stock price.

Arconic had previously defended Mr. Kleinfeld, pointing to his strategy of splitting Alcoa into Arconic, an aluminum parts manufacturer, and a commodity producer that retained the century-old Alcoa name.

At the time of the split, Alcoa was grappling with falling aluminum prices and investor pressure to concentrate on higher-margin operations, including making parts for aerospace and auto companies.

Such splits had gained favor on Wall Street as corporate executives believed that investors valued the focus that the move brought to the management teams of each new business. Companies like eBay and Hewlett-Packard have pursued that kind of breakup to drive up their stock prices.

Still, shares in what is now Arconic have fallen more than 70 percent since Mr. Kleinfeld became chief executive in 2008.

That drew the attention of Elliott, a $33 billion hedge fund founded by Paul E. Singer that has pressed for changes at Samsung and in the government of Argentina.

Both publicly and privately, Elliott has chided Mr. Kleinfeld and Arconic for wasteful spending on its Midtown Manhattan headquarters and its rebranding ad campaign that featured the Jetsons.

But ultimately, the tenure of the German-born Mr. Kleinfeld ended abruptly once he sent Elliott a letter without consulting his fellow board members.

In its statement announcing his departure — a decision that the company described as being made by mutual consent — Arconic said that Mr. Kleinfeld only showed “poor judgment” in sending the letter. The company added that the move did not arise in response to Elliott’s activist campaign or any missed financial targets.

“It is Elliott Management’s decision whether to continue to burden Arconic and its shareholders with its highly disruptive and distracting proxy fight, or to support Arconic in facilitating an effective C.E.O. search and a strong transition,” the company said.

By Elliott’s reckoning, however, the letter was much more serious.

In its own statement, the hedge fund contended that the message “read as a threat to intimidate or extort” a senior executive at the firm based on false insinuations. Elliott notified Arconic’s board last week about the message.

Elliott added, “It is simply the latest debacle in a pattern of conduct in which the board has repeatedly excused, endorsed and participated in Dr. Kleinfeld’s poor leadership and attempts to entrench himself and his allies on the board.”

Mr. Kleinfeld will be replaced as chief executive on an interim basis by David P. Hess, a former top executive at United Technologies who joined Arconic’s board this year. His role as chairman will be filled in the interim by the company’s lead director, Patricia Russo.

Arconic has said previously that electing Elliott’s directors could cost shareholders $500 million, under the rules governing changes in corporate control within an employee trust. Elliott has derided that claim as a company-created liability meant to entrench the board.

The hedge fund, which has also proposed its own candidate for chief executive, was unmoved by the interim appointments. The hedge fund argued that the current board had stood by Mr. Kleinfeld until the letter and showed no appetite for changing his strategy.

Shares in Arconic closed up 3 percent on Monday, at $26.69, after initially jumping in response to the news of Mr. Kleinfeld’s departure.

A version of this article appears in print on , on Page B3 of the New York edition with the headline: C.E.O. Steps Down After Sending Unauthorized Letter to Hedge Fund. Order Reprints | Today’s Paper | Subscribe